Based on new Consumer Price Index data through August that was released by the Bureau of Labor Statistics this morning, it appears that the Social Security cost-of-living adjustment (COLA) for 2023 will be 8.7%.
This updated projection from The Senior Citizens League’s Mary Johnson, one of the foremost experts in tracking and predicting each upcoming year’s cost of living adjustment, is the final COLA estimate before the official COLA for 2023 is released on Oct. 13, when the Bureau of Labor Statistics releases CPI data for September.
Falling gas prices last month led to the second low inflation reading in a row as the Consumer Price Index rose by just 0.1% in August. But today’s report also shows inflation has spread more broadly through the economy and may spur the Federal Reserve to sharply raise U.S. interest rates again soon.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)—which is used to calculate the Social Security COLA—increased 8.7% over the last 12 months. For the month, the index declined 0.2% prior to seasonal adjustment, the second straight month of decline.
A Social Security COLA of 8.7% would increase the average retiree benefit of $1,656 by $144.10
A Social Security COLA of 8.7% would increase the average retiree benefit of $1,656 by $144.10 (rounded as done by Social Security Administration). Seniors can calculate the increase by taking their gross Social Security benefit (the amount prior to deductions for Medicare premiums and any tax withholdings) and multiplying it by .087.
Johnson points out that a COLA of 8.7% is extremely rare and would be the highest ever received by most Social Security beneficiaries alive today. There were only three other times since the start of automatic adjustments that it was higher (1979-1981). The highest ever was 1980’s 14.3% increase. This year’s 5.9% COLA increase was the biggest since 1982’s 7.4% increase.
Johnson has seen her forecast for the 2023 COLA range from 7.6% in March and April, up to 8.9% in May, 8.6% in June, to a high of 10.5% in July before declining to 9.6% in August and finally down to 8.7% in September.
COLAs are intended to help maintain the buying power of Social Security benefits when prices rise. They are a permanent increase that will gradually boost the total Social Security income that individuals will receive over the course of their retirement. Without a COLA that adequately keeps pace with inflation, Johnson notes that Social Security benefits purchase less and less over time, and that can create hardships especially as older Americans live longer lives in retirement.
“Based on inflation through August, we calculate that the COLA for August 2023 has fallen short on average by 48%,” Johnson said. “A $1,656 benefit is short about $43.80 per month on average and by a total of $417.60 year to date.”
According to early results from The Senior Citizens League’s 2022 Retirement Survey, about 59% of survey participants believe they could be at risk of higher tax liability for 2022 due to the 5.9% COLA received this year. In addition, 21% of survey participants say that until 2022, their household income was below the income thresholds that can make up to 85% of Social Security benefits subject to federal income taxes.
That group worries they will pay tax on a portion of their Social Security benefits for the first time in the coming tax season. A COLA of 8.7% would present similar ongoing increased tax liabilities for next year. The survey is still underway, and the above results come from a sample of 626 survey participants, 96% of whom currently receive Social Security benefits.
The Medicare Part B premium and other costs tend to be announced in mid-November. Johnson said Medicare Part B premiums may not grow by very much in 2023. The Medicare Trustees forecast in their 2022 annual report that the standard Part B premium in 2023 would stay the same as it is now, $170.10. The Centers for Medicare and Medicaid Services (CMS) recently said that excess Part B premium charges in 2022 due to a reassessment of the premium would be used to reduce the Part B premium in 2023.
The Social Security Administration will not determine and release the official 2023 COLA until inflation rates are also tracked in September, the last of the three months figured in along with July and August numbers. The official 2023 COLA is expected to be announced on October 13, 2022, shortly after the release of the September Consumer Price Index data.
SEE ALSO:
• Latest 2023 Social Security COLA Estimate Drops
• New Bill Seeks to Abolish Tax on Social Security Benefits